Delhi Air­port DI­ALs Cen­tre Over Se­cu­rity Bill

Says New Delhi should fi­nance widen­ing deficit in cor­pus cre­ated to main­tain se­cu­rity

The Economic Times - - Front Page - @times­group.com

New Delhi: The GMR-led oper­a­tor of the Delhi air­port has told the gov­ern­ment it would not be able to meet even the manda­tory se­cu­rity ex­penses at In­dia’s big­gest avi­a­tion hub, and that New Delhi should in­stead fi­nance the widen­ing deficit in the ded­i­cated cor­pus cre­ated for the pur­pose.

“Please note that as there is a se­vere shortage of funds and in case the deficit continues to build up … we shall not be able to meet even the manda­tory ex­pen­di­ture to main­tain the se­cu­rity of the air­port,” the Delhi In­ter­na­tional Air­port (DIAL) CEO I Prab­hakar Rao wrote in a let­ter last week to CISF DG OP Singh. CISF runs air­port se­cu­rity.

The cost of se­cu­rity is funded through the pas­sen­ger ser­vice fee (PSF) of .₹ 130 each de­part­ing pas­sen­ger pays. The fund ac­cu­mu­lated from the levy is used pri­mar­ily to pay the salaries of the CISF per­son­nel man­ning the air­ports. Of­fi­cials say that it costs more than .₹ 1,300 crore to pro­vide se­cu­rity at air­ports across the coun­try, while the fund col­lected through PSF falls short by more than .₹ 400 crore.

Of this short­fall, the sta­te­owned Air­ports Au­thor­ity of In­dia has a deficit of .₹ 150 crore a year, which it pays from its own cor­pus. Pri­vate air­ports, how­ever, do not pay from their own cor­pus. Mum­bai air­port was sur­plus un­til the Ter­mi­nal 2 be­gan op­er­a­tions.

The avi­a­tion min­istry does not want to bur­den pas­sen­gers fur­ther and sources say that the gov­ern­ment is in talks with the fi­nance min­istry to shift the cost of se­cu­rity at air­ports to the con­sol­i­dated fund of In­dia. If the cost head is moved to the con­sol­i­dated fund, the gov­ern­ment would fi­nance the deficit di­rectly.

Eros In­ter­na­tional, which owns about 73% of Eros In­dia, man­ages the overseas dis­tri­bu­tion of the films and houses Eros Now. Eros In­dia is the main op­er­at­ing en­tity, pri­mar­ily re­spon­si­ble for con­tent cre­ation. Eros In­dia’s li­brary of over 3,000 In­dian films that in­clude Bol­ly­wood and re­gional hits is the largest in the coun­try and would give an ac­quirer a clear ad­van­tage as the war over mu­sic and video stream­ing in­ten­si­fies among stand­alone ser­vice providers, me­dia and en­ter­tain­ment con­glom­er­ates, tel­cos and dig­i­tal OTT com­pa­nies.

Eros Now has rights to over 10,000 films, around half in per­pe­tu­ity, in Hindi and re­gional lan­guages from Eros’s in­ter­nal li­brary as well as third-party ag­gre­gated con­tent. It has close to 2.9 mil­lion paid sub­scribers and over100 mil­lion reg­is­tered sub­scribers as of June 30. JM Fi­nan­cial is ad­vis­ing Eros. Eros and Apple spokesper­sons de­clined to com­ment. There was no re­sponse to emails sent to Ama­zon and Net­flix on Satur­day. “Dis­cus­sions are on to mon­e­tise the li­brary. An an­nounce­ment is likely soon,” said an of­fi­cial di­rectly in­volved. But an­other of­fi­cial said talks are on but may take a while to fruc­tify.

Founded in 1977, Eros co-pro­duces, ac­quires and dis­trib­utes In­dian lan­guage films in mul­ti­ple for­mats world­wide. Eros ex­pects to main­tain more than half the rights it now owns through at least De­cem­ber 31, 2025. In a re­cent in­vestor call, Eros In­ter­na­tional group CEO Jy­oti Desh­pande said the com­pany has de­cided to move away from large-scale ac­qui­si­tions and fo­cus on co-pro­duc­tions, a move that ex­perts said was fu­elled by a cash crunch and re­cent flops such as Sarkar 3, Rock On 2 and Baar Baar Dekho.

POWER OF ONE

“The com­pany is un­der liq­uid­ity pres­sure. It had to pull the plug on its bond sale ear­lier this year when (old) al­le­ga­tions resur­faced,” said a film in­dus­try vet­eran. “Only in FY16, the com­pany gen­er­ated some free cash flows and the pro­mot­ers have re­cently been sell­ing shares in US to re­duce debt. So di­vest­ing its cat­a­logue or con­sol­i­dat­ing cor­po­rate struc­ture into a sin­gle en­tity is be­com­ing a ne­ces­sity given the multi-level hold­ings, var­i­ous sub­sidiaries in dif­fer­ent re­gions.”

As of March 31, Eros had $271.5 mil­lion of bor­row­ings out­stand­ing, of which $180.7 mil­lion is re­payable within one year.

With the lion’s share of rev­enue and op­er­a­tions ac­counted for by the In­dian en­tity, an­a­lysts be­lieve a re­verse merger will be ad­van­ta­geous as con­tent own­er­ship will vest with a sin­gle set of share­hold­ers. In the cur­rent struc­ture, the In­dia-listed en­tity doesn’t get the overseas up­side and may par­tic­i­pate only par­tially in Eros Now, whereas a merger will also ad­dress the con­cerns of mi­nor­ity in­vestors on trans­fer pric­ing be­tween the par­ent and the In­dian en­tity.

In the past, Eros has been in talks with Fuller­ton, Sony and Ama­zon to sell a stake in Eros Now or the con­tent li­brary at a val­u­a­tion of as much as $1 bil­lion and had en­gaged in­vest­ment bank Moelis & Co. to iden­tify a strate­gic part­ner.

CON­TENT IS KING

“For Eros, the big­gest strength is its con­tent li­brary. We are al­ways in talks with mul­ti­ple play­ers to syn­di­cate con­tent and mon­e­tise the li­brary,” said a se­nior Eros ex­ec­u­tive.

The pres­ence of for­eign suit­ors will drive up the con­tent cost and hence in­crease the value of the ex­ist­ing li­brary, said An­tique Stock Broking an­a­lysts Govind Agar­wal and Omkar Had­kar. “Eros In­dia is by far the leader in film con­tent and is best placed to ben­e­fit from con­tent mon­eti­sa­tion per­spec­tive,” they wrote in a re­port. “The best part is Eros In­dia’s li­brary continues to growth at healthy pace (com­pany pro­duces about 60 films per year) and typ­i­cally has two-three films in the top 10 grosser ev­ery year.”

A li­cens­ing deal makes more prac­ti­cal sense for Eros, said Girish Menon, part­ner and head, me­dia and en­ter­tain­ment at KPMG in In­dia. “Though it may not fetch top value as the deal will have non-ex­clu­sive com­po­nents, it will be eas­ier to work out. Also, it will help Eros to get a short-term breather for their re­quire­ments. On the other hand, an out­right sale would mean ef­fec­tively sell­ing the busi­ness.” The In­dian OTT space has be­come busy in the past 18 months. Af­ter Net­flix’s en­try in Jan­uary 2016, Ama­zon too started ac­quir­ing film ti­tles ag­gres­sively. While Net­flix has signed deals with Shah Rukh Khan’s Red Chill­ies En­ter­tain­ment and Aamir Khan, Ama­zon Prime Video, launched last year, has in­vested heav­ily in ex­clu­sive movies and TV shows and standup com­edy con­tent. It has signed long-term out­put deals with ma­jor pro­duc­tion houses such as Yash Raj Films, Ex­cel En­ter­tain­ment, Dharma Pro­duc­tions, Vishesh Films and T-Series. Its lat­est deal is with Salman Khan for all his ex­ist­ing and fu­ture films. Ama­zon, which has ear­marked a .₹ 2,000-crore in­vest­ment for video stream­ing in In­dia alone, is also is in talks with mu­sic la­bels to ac­quire con­tent for Ama­zon Mu­sic, which is ex­pected to launch in In­dia next year. It has al­ready signed a deal with mar­ket leader T-Series. Eros Mu­sic is among other top la­bels in In­dia along with Sony Mu­sic and Saregama.

Apple has tra­di­tion­ally shied away from large M&As com­pared with Face­book and Google. CEO Tim Cook has so far fo­cused on grow­ing Apple’s ser­vices busi­nesses, in­clud­ing Apple Mu­sic, the App Store and iCloud. Its big­gest deal in its 41-year his­tory was the $3-bil­lion pur­chase of Beats Elec­tron­ics in 2014. Wall Street an­a­lysts have there­fore been call­ing for a big buy­out, es­pe­cially in on­line video stream­ing even as Apple has started dis­tribut­ing videos through its mu­sic ser­vice and pooling oth­ers’ videos in its mo­bile TV app, but it has no ser­vice com­pa­ra­ble to Net­flix or Ama­zon Prime in In­dia. Apple Mu­sic too has been buy­ing in­ter­na­tional con­tent such as Carpool Karaoke. Apple Mu­sic has also re­leased al­bums in the US di­rectly through its mu­sic stream­ing ser­vice without any record la­bel be­ing in­volved. In In­dia, the com­pany charges .₹ 120 a month for in­di­vid­ual mem­ber­ship af­ter a three-month free trial, and has 400,000 sub­scribers. In In­dia how­ever it isn’t grow­ing much, ex­perts said, be­cause there are many com­pet­ing of­fer­ings that stream mu­sic for free and charge only for re­mov­ing ads or down­loads. How­ever, the com­pany is plan­ning to in­vest about .₹ 50 crore in mu­sic-re­lated con­tent for users in In­dia, cu­rat­ing lo­calised playlists with a spe­cial em­pha­sis on films, fash­ion and mu­sic, said an ex­ec­u­tive.

In re­cent years though, the maker of the iPhone has been linked to takeovers of Net­flix, McLaren Tech­nol­ogy Group and even Time Warner. Ear­lier this year, San­ford C Bern­stein an­a­lyst Toni Sac­conaghi said Apple needs at least one big ac­qui­si­tion in on­line video. To reach its $50-bil­lion tar­get, the com­pany must find an ex­tra $13 bil­lion in ser­vices rev­enue over the next four years, be­yond what it can gen­er­ate it­self. Other po­ten­tial block­buster Apple ac­qui­si­tion tar­gets in­clude Walt Dis­ney Co and elec­tric car­maker Tesla Inc, Baird an­a­lyst Wil­liam Power wrote in a note to clients this year.

Eros In­dia is the main op­er­at­ing en­tity, pri­mar­ily re­spon­si­ble for con­tent cre­ation

(Ad­di­tional re­port­ing by Shaswati Shankar in Ban­ga­lore and Deepali Gupta in Mum­bai)

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